The Organization of Petroleum Exporting Countries (OPEC) has taken a definitive stance; it would not be reducing oil production but will rather stick to the group’s existing target output of 30 million oil barrels per day. Following the announcement, the prices of oil slumped further, an expected reaction to a subdued decision.
Crude oil prices plummeted over 6 percent to sit below $68 a barrel after OPEC made the announcement, that’s the lowest price in about four years.
“Some analysts have said that oil prices could slide to $60 per barrel if OPEC does not agree to a significant output cut. Benchmark Brent futures dropped over $1 on Thursday to $76.28 a barrel, the lowest level since September 2010. U.S. crude also dropped over $1 to a session low of $72.61,” an analysis by Reuters read.
The rest of the world is already beginning to catch cold from OPEC’s decision. Russia, a non-OPEC petroleum exporting country, has seen its currency, the Rouble, weaken against the Dollar and Euro. Around 1700 GMT yesterday, the Rouble was down around 2.6 percent against the dollar at 48.60 roubles per dollar and around 2.5 percent weaker against the euro at 60.69 roubles per euro.
“The rouble basket is in free fall again, reflecting the lack of agreement from OPEC over oil production cuts. I would assume that the central bank will need to come in very soon,” reuters quoted Timothy Ash, an emerging markets analyst for Standard Bank.
OPEC’s Secretary General, Abdallah Salem el-Badri, said the decision to maintain status quo was given some serious thought before unanimously concluding. “There’s a price decline. That does not mean that we should really rush and do something. We don’t want to panic, we want to see the market, how the market behaves, because the decline of the price does not reflect a fundamental change.”
Analysts argue that this doggedness may actually be a strategy to remain competitive against the shale threat, a key driver of the falling oil prices. By maintaining output, OPEC retains dominance in the international market. The fall out, as is already in play, will be a further dip in oil prices, but this may be a desirable outcome for OPEC as low oil prices can handicap shale production over the longer term.
OPEC was established in 1960 to synchronize the petroleum policies of its members, and to provide member states with technical and economic aid. As a cartel, it aims to manage the supply of oil in an effort to set the price of oil on the world market and avoid fluctuations that might affect the economies of both producing and purchasing countries.
Its member countries hold about 80 percent of crude oil reserves and nearly half of natural gas reserves in the world. But despite the organization’s considerable power and influence in the global market, increasing number of discoveries across the world is gradually altering its much perceived dominance. (VENTURES AFRICA)